The Organisation for Economic Cooperation and Development said annualized inflation across the group of 37 advanced economies slowed to 1.7% in March from 2.3% in February. That’s the biggest deceleration since the 2008 global financial crisis.
Energy prices fell by 3.6% in March after a 2.3% increase in February. Food price inflation, on the other hand, climbed to 2.4% in March from 2% in February.
Some economists see the drop in the inflation rate continuing until the global economy reaches deflation, an actual drop in prices. For example, Janet Henry, the global chief economist at HSBC, told the Guardian that said she expected inflation in the United States, the EuroZone, and most of the G10 group of wealthy countries to turn negative within the next couple of months.
She also warned, however, that inflation could soar if governments and central banks overestimated the damage to global supply chains caused by the pandemic, and offered too much support to businesses and households to keep spending.
However, should Covid-19 cripple the economy worse than expected, she said, “extra slack in the economy from a failure to stimulate demand sufficiently could ultimately result in below-target inflation or even outright deflation.”
If those comments seem all-over-the-place, I think that’s reflective of the deep uncertainties of the moment. Economists, looking down the road, see inflation and deflation as both potential paths for the global economy.
